Bombay High Court: In the present petition, the petitioner, Director and Shareholder of N. Kumar Housing and Infrastructures challenged Indian Bank’s (‘Bank’) rejection of her One Time Settlement (‘OTS’) proposals for a defaulted loan. She claimed the Bank acted unfairly by not revealing benchmark criteria or following Reserve Bank of India (‘RBI’) guidelines, and sought Court directions to compel disclosure and consideration of the OTS.
The Division Bench of Anil S. Kilor, and Rajnish R. Vyas*, JJ., while dismissing the petition held that when parties were governed by terms and conditions of a contract with full understanding, they could not subsequently change their stand and deviate from the obligation to repay the amount. The Court highlighted that the doctrine of legitimate expectation was rooted in fairness, which would obviously mean repayment of the outstanding amount within the agreed period.
Background:
The case arose from a financial arrangement in which the petitioner was involved in a term loan facility extended by Respondents 1 and 2 to Poonam Resorts Ltd., the principal borrower, for the development and construction of a Club House cum Resort Project. A term loan of Rs 62 Crores was granted on 08-03-2011 at floating interest, with a project cost of Rs 93.70 Crores and a repayment tenure of 110 months. It was submitted that the Respondent 5 had executed a deed of guarantee and mortgaged documents to secure the loan, along with a letter confirming deposit of title deed.
Due to default in repayment, the credit facility was classified as a non-performing asset on 31-03-2017. Thereby Respondents 1 and 2 took recourse to Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’), and later proceeded under Section 13(4). They also filed a Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) before the National Company Law Tribunal (‘NCLT’), Mumbai. The petitioner alleged that the Bank acted like a private money lender and did not follow RBI policy. It was further contented that several OTS proposals were submitted but were rejected for not meeting undisclosed benchmarks.
The petitioner sought directions to the RBI to appoint an independent officer for audit of the accounts originally maintained by Respondent 2 and transferred to Respondent 1. She also sought a declaration that the actions of the Interim Resolution Professional were illegal and requested expedited hearing of the securitisation appeal filed by Respondent 4. The controversy narrowed down to whether the borrower or guarantor could compel the Bank to disclose benchmarks and accept OTS proposals.
In contrary, the Bank contended that the loan agreement was contractual and that judicial intervention under Article 226 was unwarranted. It was alleged that the matter involved public money and that proceedings had already been initiated under SARFAESI and the IBC. The Bank also stated that the interim deposit made by the petitioner was insufficient to satisfy the outstanding amount. Further, the Interim Resolution (‘IR’) professional submitted that it was bound by statutory obligations under the IBC and that settlement could be considered under its provisions.
Analysis and Decision:
The Court observed that, admittedly, the Bank, while advancing the loan, dealt with public money. Moreover, the execution of the loan agreement and N. Kumar Housing and Infrastructure standing as guarantor to Respondent 4 was not disputed. The Court emphasised that the question was only whether the bank was under a legal obligation to consider the proposal of OTS submitted by the principal borrower/guarantor and whether, by not doing so, it acted arbitrarily.
Further, the Court highlighted that, due to non-payment of dues, proceedings under the SARFAESI Act had already been initiated by the bank, and recourse had also been taken to Section 7 IBC. Consequently, the Court noted that, since these were special laws enacted to deal with a special category of cases such as default by the borrower, the question of whether the power of judicial review could be exercised was to be tested.
The Court analysed that no specific policy of the Bank had been brought on record by the petitioner to show that, for any particular period, amount, or stage, the OTS scheme was made applicable. The Court observed that merely submitting an OTS proposal, which was considered and rejected from time to time for not matching the benchmark, did not create a semblance of right in favour of the borrower. The Court further noted that the petitioner’s contention regarding non-disclosure of the benchmark was not a very appealable argument, as nothing had been brought to its notice to show that disclosing the benchmark was mandatory under any provision. Therefore, the Court held that it could not be said that the Bank acted arbitrarily by not disclosing the benchmark.
Finally, the Court endorsed the submission made by the Bank that it dealt with public money and, therefore, asking it to settle the account by accepting the OTS would not be in the interest of the public at large.
The Court noted that, insofar as the contention of the petitioner that the main aim of the IBC was not to recover the amount but to give a lease of life to companies which were running, the same could not be doubted. However, the Court observed that the fact remained that the borrower and guarantor were debtors and had not repaid the outstanding. The Court emphasised that when parties were governed by terms and conditions of a contract with full understanding, they could not subsequently change their stand and deviate from the obligation to repay the amount.
Further, the Court analysed the contention of the petitioner that he was legitimately expecting the respondent bank to act as per the guidelines framed by the RBI. While this may at first glance have seemed attractive, the Court highlighted that it ignored the fact that the doctrine of legitimate expectation was rooted in fairness, which would obviously mean repayment of the outstanding amount within the agreed period.
In light of the observations of the Supreme Court it was noted that if the Bank or financial institution was of the opinion that the loanee had the capacity to make the payment or that the Bank was able to recover the entire loan amount even by auctioning the mortgaged property, the Bank would be justified in refusing to grant benefit under the OTS scheme. Accordingly, the Court emphasised that such decisions should be left to the commercial wisdom of the Bank whose amount was involved, and it was always to be presumed that the Bank would take a prudent decision whether to grant the benefit under the OTS scheme, having regard to the public interest involved. Therefore, the Court stated that it did not intend to interfere.
The Court noted that any observations made there might affect the proceedings pending before the Tribunals. Thus, the Court held that it was not passing any specific orders as the core issue had already been answered in the petition. The Court concluded that exercising power under Article 226 of the Constitution would not be in the interest of justice and, therefore, the petition stood dismissed.
Furthermore, the Court observed that, although the request to extend the stay was opposed by the Bank, the interim order was already in effect for nearly two years. Therefore, the Court found that continuing it for another six weeks would not cause any harm to the respondents. Accordingly, the Court directed that the interim order would remain in force for six more weeks, after which it would automatically come to an end.
[Archana Wani v. Indian Bank, Writ Petition No. 3766 of 2023, decided on 17-10-2025]
*Judgment authored by: Justice Rajnish R. Vyas
Advocates who appeared in this case:
For the Petitioner: Devendra V. Chauhan, Senior Advocate a/b Chaitanya Dhruv & Parth C. Malviya, Advocate
For the Respondents A.T. Purohit with T. Y. Sharif, Advocate, S.N. Kumar, Advocate, Akshay Naik, Senior Advocate a/b Rohan Deo, Advocate, C.S. Dhore, Advocate
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